Work Versus Welfare

It is a fundamental economic principle that if you pay people more to do A than you do to do B, you will get more people doing A.  A new Cato Institute study demonstrates how this principle applies to choices between work and welfare.

The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states (even after accounting for the Earned Income Tax Credit) and in 13 states it pays more than $15 per hour. If you live in Hawaii, welfare provides you with almost $50,000 in payments (see Table 14 below). You would have to earn over $60,000 in pretax income just to match those benefits (see Table 15 below). Is it any wonder that Hawaii has so many people who choose not to work? In California unless you have jobs that pay you at least $37,000, you would be better off on welfare.Is it any wonder that California has 12% of the country's population but a third of all its welfare recipients?

And that's just the monetary aspect. It does not account for the value to you of the extra 40, 50 ,60 hours of leisure time you enjoy when you're not having to work.

Welfare recipients are often maligned as being stupid people. Maybe not. 

Misinterpreting the Failures of Obamacare

With weekly revelations of new failures of Obamacare, it is tempting to join the chorus of "I told you so", but that would obscure the much broader and more important "I told you so" involved. To wit:

Obamacare did not fail entirely because it was a bad plan (though it was). It failed because no group of men and women sitting in Washington  -- no matter how smart they are (or think they are in the case of Pelosi and Reid), no matter how many MDs, PhDs or LLDs follow their names, no matter whether a D or R is appended-- can design something that will work better in complex markets than what the markets themselves evolve.

A critical adjunct to this understanding is that markets themselves do not always work well in Version 1.0 (ask anyone who tried to run Windows prior to 1998). It takes constant iteration to approach a well-functioning system. And those iterations are not without casualties. In fact it is failure itself that is the essence of the process and why government will always produce inferior results. In government, iterative failure (and associated learning) is not allowed to happen. Systems are rarely adapted to meet people's needs and desires. People must be manipulated and coerced to fit the system that has been designed.  Government's motto is:

When you try to put a square peg in a round hole, it is the responsibility of the hole to change.

It's The Household Composition, Stupid!

As the endless wailing about income disparities continues, it is useful to examine one of the principal reasons for the differences. Scan the table below from the US Census Bureau for 2011. Notice anything? Like higher earning households have more earners in the household? Now this shouldn't be surprising, but it seldom gets reported. Why? Because the solution -- i.e. get married to someone who has income earning potential -- doesn't sit well with those whose agenda is to encourage even more single-earner households. Nor does the solution probably require a massive new government intervention program.

Income range	Households (k)	Percent	Mean # earners	Mean household size
Under $5,000	4,261	3.52%	0.23	2.02
$5- $9,999	4,972	4.11%	0.36	1.81
$10-$14,999	7,127	5.89%	0.42	1.74
$15-$19,999	6,882	5.68%	0.57	1.96
$20-$24,999	7,095	5.86%	0.75	2.14
$25-$29,999	6,591	5.44%	0.85	2.22
$30-$34,999	6,667	5.51%	0.97	2.34
$35-$39,999	6,136	5.07%	1.06	2.41
$40-$44,999	5,795	4.79%	1.2	2.46
$45-$49,999	4,945	4.08%	1.32	2.55
$50-$54,999	5,170	4.27%	1.32	2.52
$55-$59,999	4,250	3.51%	1.49	2.72
$60-$64,999	4,432	3.66%	1.49	2.66
$65-$69,999	3,836	3.17%	1.58	2.75
$70-$74,999	3,606	2.98%	1.63	2.82
$75-$79,999	3,452	2.85%	1.7	2.89
$80- $84,999	3,036	2.51%	1.73	2.86
$85-$89,999	2,566	2.12%	1.8	3
$90-$94,999	2,594	2.14%	1.79	2.96
$95-$99,999	2,251	1.86%	1.87	3.09
$100-$104,999	2,527	2.09%	1.78	2.94
$105-$109,999	1,771	1.46%	2.01	3.18
$110-$114,999	1,723	1.42%	1.96	3.11
$115-$119,999	1,569	1.30%	1.98	3.06
$120-$124,999	1,540	1.27%	2.01	3.16
$125-$129,999	1,258	1.04%	1.97	3.08
$130-$134,999	1,211	1.00%	2	3.17
$135-$139,999	918	0.76%	2.1	3.18
$140-$144,999	1,031	0.85%	2.12	3.26
$145-$149,999	893	0.74%	2.11	3.21
$150-$154,999	1,166	0.96%	1.86	3.09
$155--$159,999	740	0.61%	2.04	3.11
$160-$164,999	697	0.58%	2.05	3.29
$165-$169,999	610	0.50%	2.15	3.17
$170-$174,999	617	0.51%	1.99	3.05
$175-$179,999	530	0.44%	2.09	3.08
$180-$184,999	460	0.38%	2.12	3.28
$185-$189,999	363	0.30%	2.3	3.32
$190-$194,999	380	0.31%	2.22	3.17
$195-$199,999	312	0.26%	2.3	3.28
$200-$249,999	2,297	1.90%	2.06	3.24
$250,000+	2,808	2.32%
Total	121,084

Detroit Refugees

Imagine you lived in a city with the highest income and property taxes in your state. Imagine taxes on business doubled in the last year. Imagine 40% of all revenue your city collected went to pay off people who no longer worked for the city. Imagine that the police didn't respond to emergency calls for almost an hour and 40% of the street lights didn't work. Imagine half of the students at your public schools never graduated high school. Imagine

What would you do? Wouldn't you move out if you could? Wouldn't you follow the 250,000 people who have left the city in the last decade?

Correlation Does Not Equal Causation

Economists frequently issue the caution that correlation does not necessarily imply causation. Chris Blattman at Columbia University came up with this succinct reminder. Even if Chrome and Firefox are more "peaceful" browsers.

Unemployment Rate Drops as the Workforce Drops Out

Periodically you hear President Obama pat himself on the back because the unemployment rate has fallen from nearly 10 in 2009 to 7.6 today. Huzzah!

Except that what's really going on is that more and more people are leaving the workforce.



Which is a bit like the high school principle congratulating himself for having a higher grade point average as more kids are dropping out of school!